[Federal Register Volume 60, Number 23 (Friday, February 3, 1995)]
[Notices]
[Pages 6743-6744]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2653]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35287; File No. SR-NYSE-39; SR-Phlx-94-29; SR-PSE-94-
34; SR-BSE-94-15; SR-CHX-94-28; SR-NASD-94-67; SR-CBOE-94-55]
Self-Regulatory Organizations; New York Stock Exchange, Inc.,
Philadelphia Stock Exchange, Inc., Pacific Stock Exchange, Inc., Boston
Stock Exchange, Inc., Chicago Stock Exchange, Inc., National
Association of Securities Dealers, Inc., and Chicago Board Options
Exchange; Order Granting Accelerated Approval to Proposed Rule Change
Adopting Rules for Short Position Reporting
January 27, 1995.
On October 27, 1994, the New York Stock Exchange, Inc. (``NYSE''),
October 20, 1994, the Philadelphia Stock Exchange, Inc. (``Phlx''),
November 23, 1994, the Pacific Stock Exchange, Inc. (``PSE''), November
28, 1994, the Boston Stock Exchange, Inc. (``BSE''), December 12, 1994,
the Chicago Stock Exchange, Inc. (``CHX''), December 2, 1994, the
National Association of Securities Dealers, Inc. (``NASD''),\1\ and on
January 3, 1995, the Chicago Board Options Exchange (``CBOE'')
(collectively, the ``SROs'') submitted to the Securities and Exchange
Commission (``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act'')\2\ and Rule 19b-4
thereunder,\3\ proposed rule changes to facilitate uniform short
position reporting requirements.\4\
\1\In addition, the NASD filed Amendment No. 1 on January 11,
1995, to clarify who must report to the NASD, what the entities must
report, and the mechanics of how to transmit such report. Because
the Amendment does not substantively change the proposal, the
Commission is not publishing it for comment. See letter from Joan C.
Conley, Secretary, NASD, to Mark Barracca, Attorney, SEC, dated
January 11, 1995.
\2\15 U.S.C. 78s(b)(1) (1988).
\3\17 CFR 240.19b-4 (1991).
\4\``Short'' positions to be reported are those resulting from
``short'' sales as defined in SEC Rule 3b-3, but excludes positions
resulting from sales specified in clauses (1), (6), (7), (8), (9)
and (10) of paragraph (e) of SEC Rule 10a-1. Also to be excluded are
``short'' positions carried for other members and member
organizations reporting for themselves.
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The proposed rule change filed by the CBOE was published for
comment in Securities Exchange Act Release No. 35227 (January 13,
1995), 60 FR 4208 (January 20, 1995). In addition, all of the other
proposed rule changes were published for comment in Securities Exchange
Act Release No. 35147 (December 23, 1994), 60 FR 518 (January 4, 1995).
No comments were received on the proposal from either notice
publication.
The proposed rule changes emanated from an initiative by the SROs,
as Intermarket Surveillance Group (``ISG'')\5\ members, to ensure
uniform short position reporting in U.S. traded securities.\6\ Although
the specific language of each proposed rule change differs slightly,
the goal of the SROs is uniform in proposing the adoption of the above
referenced rules. Generally, the SROs' goal is to ensure that a broker-
dealer registered in the United States reports its open short positions
to the SRO that is the broker-dealer's Designated Examining Authority
(``DEA''). If the particular broker-dealer's DEA does not have rules
governing the reporting of short interest positions, then the broker-
dealer is to report to another SRO of which it is a member. Non-self-
clearing broker-dealers, however, will be considered to have satisfied
their reporting requirements by making the appropriate arrangements
with their respective clearing organizations.
\5\ISG was formed on July 14, 1983 to, among other things,
coordinate more effectively surveillance and investigative
information sharing arrangements. See Intermarket Surveillance Group
Agreement, July 14, 1983.
\6\Specifically: (1) The BSE is adding Sec. 38 to Chapter II of
its Rules; (2) the CBOE is adopting interpretation and policy .02 to
its Rule 15.1; (3) the CHX is adopting Article XI, Rule 9, and an
interpretation thereto; (4) the NASD is amending Article III,
Section 41; (5) the NYSE is amending Rule 421; (6) the PSE is
adopting Rule 2.6(f); and (7) the Phlx is adopting Rule 786.
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Substantively, the new reporting requirements will continue to
include stocks and warrants, including odd lots, in each such security
traded on a United States securities exchange or association. Further,
the reports will continue to include both customer and proprietary
positions, and for those broker-dealers with more then one ``account''
with a short position in the same stock or warrant, the combined
aggregate should be reported. In this regard, the Commission notes that
like accounts should be netted, and then multiple accounts should be
aggregated.\7\
\7\The aggregation requirement, however, does not include the
netting of short interest against long in a given security across
``non-like'' accounts. For example, if a broker dealer has three
accounts for different customers, and account 1 has short interest
of 100 shares, account 2 has short interest of 225 shares, and
account 3 is long 150 shares, the broker dealer shall report short
interest of 325, not 175. See CHX proposed Article XI, Rule 9,
Interpretation and Policy .01. If, however, in the above example
account 1 was the firm's customer account, and accounts 2 and 3 were
the firm's proprietary accounts, then the firm would net accounts 2
and 3 to ascertain its proprietary account position (in this case
short 75 shares). The firm would then report the aggregate of its
customer account short interest position of 100 shares and its
proprietary short interest position of 75 shares--175 shares short
in total--for the firm in the particular security.
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The format, time, and method of reporting will be prescribed by
each SRO receiving short interest data.\8\ Each such SRO will
electronically send the data to the Securities Industry Automation
Corporation (``SIAC'').\9\ With respect to listed securities, SIAC will
in turn consolidate all data in each security to generate a number
representing the national short position in each such security. The
NASD, however, will be performing this function with respect to Nasdaq
securities. All Nasdaq short interest will be reported to the NASD by
its members. Firms not members of the NASD will report their short
interest positions in Nasdaq securities to an SRO, which will forward
it to SIAC, which will then forward Nasdaq data to the NASD. The NASD
will compile all short interest data in Nasdaq securities and send it,
along with a consolidated national short interest position for each
security, to SIAC for dissemination purposes.
\8\Monthly reporting will remain in effect for the present but
more frequent reporting might be initiated in the future. See
Circular sent by the ISG to all members and member organizations
titled ``Consolidated Reporting of Short Interest Positions.''
\9\SIAC is a jointly owned subsidiary of the NYSE and the Amex.
Among other things, it handles the majority of the automation needs
of the ISG.
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Several exceptions to the general requirements outlined above are
clarified in the ISG circular to members entitled ``Consolidated
Reporting of Short Interest Positions.'' First, members and member
organizations for which the CHX is the DEA, and who are self-clearing
members of the Midwest Clearing Corporation (``MCC''), will have their
reporting requirement satisfied automatically through the CHX's ability
to capture the required information from the MCC. Further,
[[Page 6744]] certain CHX members which trade Nasdaq National Market
System securities as specialists may be required by the CHX to report
their short interest positions in those securities directly to the
NASD.
Second, short interest position information for member
organizations which act as specialists on the BSE, PSE or Phlx, will be
processed by the clearing corporations utilized by these organizations.
Third, pursuant to an amendment of CBOE Rule 15.1, clearing members
of the CBOE for which the CBOE is the DEA, will be required to report
any short interest positions to another exchange or the NASD, even if
solely a member of the CBOE. The CBOE will designate an exchange or the
NASD to receive such reports on a case-by-case basis.\10\
\10\The CBOE and NASD have represented to the Commission that
currently this exception applies to only one firm. That firm will be
reporting to the NASD pursuant to an agreement between the CBOE and
the NASD. Conversations between Amy Bilbija, Attorney, SEC, and Jim
Cangiano, NASD, on January 23, 1995; and Jeff Schroer, CBOE, on
January 23, 1995.
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Fourth, the Amex will be sending out a circular to its members
informing them of the new requirements. The Amex did not submit a new
filing because it is relying on the general language in its Rule 30 to
encompass the proposal at hand.\11\
\11\See Amex Rule 30 requiring every member to file with the
Amex such periodic reports or special reports as the Board of
Governors may authorize. The Amex currently requires short interest
position reporting of its membership pursuant to this Rule, and will
continue to rely on this Rule to require the new reporting.
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The new reporting requirements being approved herein will be tested
by SIAC and the ISG members during the months of March and April, 1995.
Testing will be conducted to ensure the reliability of the new
reporting requirements, but the new figures will not be reported to the
public. During the test period, broker-dealers currently subject to a
reporting requirement must report open short interest positions under
both the new reporting requirements and such current reporting
requirement. After this test period, the new reporting requirements
will be the only reporting requirements, and will be mandatory for all
short positions. Thus, beginning in May, 1995, all broker-dealers will
be reporting open short positions to an SRO under the new requirements.
The national numbers generated as of that date will be reported to the
public.
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange, and, in
particular, with the requirements of Sections 6(b) and 15A.\12\ In
particular, the Commission believes the proposal is consistent with the
Section 6(b)(5) and 15A(b)(6) requirements that the rules of an
exchange be designed to promote just and equitable principles of trade,
to prevent fraudulent and manipulative acts, and, in general, to
protect investors and the public, in that the proposal should enhance
the ability of the SROs, both collectively and individually, to monitor
short interest reporting, and to reinforce their regulatory and
surveillance capabilities in this area. In this regard, the Commission
commends the ISG in recognizing that consolidated short interest
figures, that would include the regional exchanges, would serve as an
important surveillance tool to monitor trading activity. Further, the
Commission believes that uniform short interest reporting requirements,
and subsequent aggregation and reporting by SIAC, will enable the
public to make more informed investment decisions in the United States
market.
\12\15 U.S.C. Secs. 78f(b), 78o-3 (1988).
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Finally, the Commission finds good cause for approving the proposed
rule changes prior to the thirtieth day after the date of publication
of notice of filing thereof in the Federal Register. The Commission
believes that accelerated approval of the proposal is appropriate in
order to allow the SROs to inform their members about the new short
interest reporting rules and how the new reporting requirements will be
tested and implemented. Further, shortly after the approval date
hereof, a circular will be sent out by the ISG, as indicated above,
which will contain some additional clarifying information. The
Commission notes that the new procedures were noticed in the Federal
Register for the full statutory period and the Commission did not
receive any comments on it. Although the CBOE filing was not published
for the full period, the Commission notes that the intent of all of the
proposals encompassed herein is the same. To facilitate the orderly
implementation of the changes in short interest reporting requirements,
the Commission is approving all filings simultaneously.
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule changes (SR-NYSE-94-39; SR-Phlx-94-29;
SR-PSE-94-34; SR-BSE-94-15; SR-CHX-94-28; SR-NASD-94-67; SR-CBOE-94-55)
are approved.
\13\15 U.S.C. Sec. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
\14\17 CFR 200.30-3(a)(12) (1991).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-2653 Filed 2-2-95; 8:45 am]
BILLING CODE 8010-01-M
